Steelmakers profit at risk from higher cost - Moodys

Moody's Investors Service said that steelmakers ThyssenKrupp AG, Lucchini SpA and TATA Steel Limited's UK unit may have margins squeezed and profits cut if they're unable pass on higher costs expected this year.

Mr Matthias Hellstern analyst at Moody's wrote in a report that prices of iron ore may rise 40%, while coking coal has doubled in the past year. He added that the increases may hurt profit and have negative credit implications for some producers.

The Bloomberg Europe Steel Index of shares including ThyssenKrupp has declined 6.8% this year after a 74% surge last year, partly on rebounding commodity prices. ThyssenKrupp plans to raise steel prices from April 2010 to at least match any gains in raw material costs.

Moody's said that higher raw material costs will flow through to steel costs for carmakers and construction companies. It added that "If these producers are unable to pass on increased input costs to their customers in part by continuously adjusting the supply demand balance as they did during the 2009 downturn margins will be squeezed."

ThyssenKrupp's debt is rated Baa3, outlook negative, at Moody’s. Lucchini has a B1 rating, outlook stable and TATA Steel UK has a B2 rating, outlook stable. In November 2009, ThyssenKrupp’s credit ratings were cut to below investment grade by Standard & Poor’s because of its high spending and a sharp downturn in the industry.

(Sourced from www.bloomberg.net)